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EU and Wall Street in unlikely Tag Team

While it was always a fair bet that major banks would be vociferous in their objections to the CFTC’s  closing of a putative cross-border regulation loophole, it is (at least recently) unusual to see the EU join the critical chorus. Bank lobbyists and Republican lawmakers have strenuously objected to the CFTC’s 15th November advisory statement, clarifying that overseas affiliates will be subject to reporting and other obligations. Their criticism fails to engage with the central issue of the advice, but focusses on the lack of warning, and the absence of a formal vote by the commissioners, characterising the advisory as regulation by fiat.

“We clearly have an agency chairman gone rogue,” said Congressman Scott Garret, “Since when did it become acceptable for the chairman of the CFTC to change law and commission-approved guidance though an advisory opinion issued by staff at his discretion?”.

The EU’s Chantal Hughes, spokeswoman for financial services czar Michel Barnier, was forthright in her criticism, ““We were very surprised by the latest CFTC rules which seem to us to go against both the letter and spirit of the path forward agreement”. She characterised the cross-border rule clarification as antagonistic to the joint EU-US aim of regulatory harmonisation, calling it “another step away from the kind of inter-operable global system that we want to build.”

Given that Mr. Gensler has always been consistent and explicit on this issue, it was always unlikely that this legally dubious, technical loophole would survive his increasingly short tenure as Chairman. If anything, the episode serves as a reminder of the difficulties that bedevil even a determined and capable financial regulator. While the rules are now largely in place, their enforcement and refinement will fall to his successor- most likely White House nominee Timothy Massad, currently more celebrated for his abilities to form consensus than any reforming or disciplinary zeal.

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